[Federal Register Volume 62, Number 209 (Wednesday, October 29, 1997)]
[Rules and Regulations]
[Pages 56121-56133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28548]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 69
[CC Docket Nos. 96-262, 94-1, 91-213; FCC 97-368]
Access Charge Reform; Price Cap Performance Review for Local
Exchange Carriers; Transport Rate Structure
AGENCY: Federal Communications Commission.
ACTION: Final rule; petition for reconsideration.
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SUMMARY: On December 23, 1996, the Commission adopted a Notice of
Proposed Rulemaking in this docket, 62 FR 4670 (Jan. 31, 1997), seeking
comment on how the interstate access charge regime should be revised in
light of the local competition and Bell Operating Company entry
provisions of the Telecommunications Act of 1996 and state actions to
open local markets to competition, the effects of potential and actual
competition on incumbent LEC pricing for interstate access, and the
impact of the Act's mandate to preserve and enhance universal service.
On May 7, 1997, the Commission adopted a First Report and Order, 62 FR
31040 (June 6, 1997), in which it adopted many of the rules it
proposed. In this Second Order on Reconsideration, the Commission
modifies some of the rules adopted in the First Report and Order. These
rule revisions are intended to foster competition, move access charges
over time to more economically efficient levels and rate structures,
preserve universal service, and lower rates.
EFFECTIVE DATES: The following rules or amendments thereto, shall
become effective January 1, 1998: 47 CFR 69.153(g), 69.4, 69.111(c)(1),
69.153(c)(1), 69.153(d)(1)(i), 69.153(d)(2)(i), and 69.155(c). The
Commission has requested emergency approval of the information
collection requirements to ensure that it may be
[[Page 56122]]
effective on January 1, 1998. Written comments by the public on the new
and/or modified information collections are due November 13, 1997.
Written comments must be submitted to the Office of Management and
Budget (OMB) on the new and/or modified information collections on or
before October xx, 1997.
FOR FURTHER INFORMATION CONTACT: Richard Lerner, Attorney, Common
Carrier Bureau, Competitive Pricing Division, (202) 418-1530. For
additional information concerning the information collections contained
in this Report and Order contact Judy Boley at 202-418-0214, or via the
Internet at jboley@fcc.gov.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order adopted October 8, 1997, and released October 9, 1997. The
full text of this Report and Order is available for inspection and
copying during normal business hours in the FCC Reference Center (Room
239), 1919 M St., N.W., Washington, DC. The complete text also may be
obtained through the World Wide Web, at http://www.fcc.gov/Bureaus/
Common__Carrier/Orders/1997/fcc97368.wp, or may be purchased from the
Commission's copy contractor, International Transcription Service,
Inc., (202) 857-3800, 1231 20th Street, NW, Washington, DC 20036. The
rules adopted in this Second Order on Reconsideration are made in
response to petitions for reconsideration to Access Charge Reform, CC
Docket No. 96-262, Report and Order, 62 FR 31040 (June 6, 1997) (First
Report and Order), and to correct clerical errors of the First Report
and Order. This Second Order on Reconsideration contains new and/or
modified information collections subject to the Paperwork Reduction Act
of 1995 (PRA). It has been submitted to the Office of Management and
Budget (OMB) for review under the PRA. OMB, the general public, and
other Federal agencies are invited to comment on the new and/or
modified information collections contained in this proceeding. Please
note that the Commission has requested emergency review and approval of
this collection by November 13, 1997 under the provisions of 5 CFR
1320.13.
Final Regulatory Flexibility Analysis
In the First Report and Order, we conducted a Final Regulatory
Flexibility Analysis as required by Section 603 of the Regulatory
Flexibility Act, as amended by the Contract with America Advancement
Act of 1996, Pub. L. No. 104-121, 110 Stat. 847 (1996). The changes we
adopt in this Order do not affect that analysis.
Paperwork Reduction Act
This Order contains either a proposed or modified information
collection. As part of its continuing effort to reduce paperwork
burdens, we invite the general public and the Office of Management and
Budget (OMB) to take this opportunity to comment on the information
collections contained in this Order, as required by the Paperwork
Reduction Act of 1995, Public Law 104-13. Please note that the
Commission has requested emergency review and approval of this
collection by November 13, 1997 under the provisions of 5 CFR 1320.13.
OMB notification of action is due November 13, 1997. Comments should
address: (a) Whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information shall have practical
utility; (b) the accuracy of the Commission's burden estimates; (c)
ways to enhance the quality, utility, and clarity of the information
collected; and (d) ways to minimize the burden of the collection of
information on the respondents, including the use of automated
collection techniques or other forms of information technology.
OMB Approval Number: 3060-0760.
Title: Access Charge Reform Second Order on Reconsideration
Type of Review: Revised Collection
Respondents: Business and other for profit.
Number of Respondents: 14.
Estimated Time Per Response: 128,907 hours.
Total Annual Burden: 1,804,690 hours.
Estimated Costs Per Respondent: $4,504,388.
Total Annual Estimated Costs: $63,061,430.
Needs and Uses: 1. In the First Report and Order (Order), CC Docket
No. 96-262, Access Charge Reform and the Second Order on
Reconsideration, the FCC adopts, that, consistent with principles of
cost-causation and economic efficiency, non-traffic sensitive (NTS)
costs associated with local switching should be recovered on an NTS
basis, through flat-rated, per month charges. The information
collections are as follows:
a. Showings Under the Market-Based Approach: As competition
develops in the market, the FCC will gradually relax and ultimately
remove existing Part 69 federal access rate structure requirements and
Part 61 price caps restrictions on rate level changes. Regulatory
reform will take place in two phases. The first phase of regulatory
reform will take place when an incumbent Local Exchange Carrier's (LEC)
network has been opened to competition for interstate access services.
The second phase of rate structure reforms will take place when an
actual competitive presence has developed in the marketplace.
Detariffing will take place when substantial competition has developed
for the access charge elements. In our initial statement, we proposed
that in order for LECs to meet this standard, they have to demonstrate
that: (1) Unbundled network element prices are based on geographically
deaveraged, forward-looking economic costs in a manner that reflects
the way costs are incurred; (2) transport and termination charges are
based on the additional cost of transporting and terminating another
carrier's traffic; (3) wholesale prices for retail services are based
on reasonably avoidable costs; (4) network elements and services are
capable of being provisioned rapidly and consistent with a significant
level of demand; (5) dialing parity is provided by the incumbent LEC to
competitors; (6) number portability is provided by the incumbent LEC to
competitors; (7) access to incumbent LEC rights-of-way is provided to
competitors; and (8) open and non-discriminatory network standards and
protocols are put into effect. We propose that the second phase of rate
structure reforms would take place when an actual competitive presence
has developed in the marketplace. LECs would have to show the following
to indicate that actual competition has developed in the marketplace
by: (1) Demonstrated presence of competition; (2) full implementation
of competitively neutral universal service support mechanisms; and (3)
credible and timely enforcement of pro-competitive rules. In the NPRM,
we sought comment on four options for a prescriptive approach:
reinitializing price cap indices (PCIs) to economic cost-based levels;
reinitializing PCIs to levels targeted to yield no more than an 11.25
percent rate of return, or some other rate of return; adding a policy-
based mechanism similar to the CPD to the X-Factor; or prescribing
economic cost-based rates. We have decided above to rely primarily on a
market-based approach, and impose prescriptive requirements only when
market forces are inadequate to ensure just and reasonable rates for
particular services or areas. We will determine the details of our
market-based approach in a future Order. In that Order, we will also
discuss in more detail what prescriptive
[[Page 56123]]
requirements we will use as a backstop to our market-based access
charge reform. Because we are not adopting the prescriptive approach at
this time, we are removing the collections associated with the
prescriptive approach from our statement. If the collections are
adopted at a later date, we will request that OMB reinstates them at
that time. No change.
b. Cost Study of Local Switching Costs: The FCC does not establish
a fixed percentage of local switching costs that incumbent LECs must
reassign to the Common Line basket or newly created Trunk Cards and
Ports service category as NTS costs. In light of the widely varying
estimates in the record, we conclude that the portion of costs that is
NTS costs likely varies among LEC switches. Accordingly, we require
each price cap LEC to conduct a cost study to determine the
geographically-averaged portion of local switching costs that is
attributable to the line-side ports, as defined above, and to dedicated
trunk side cards and ports. These amounts, including cost support,
should be reflected in the access charge elements filed in the LEC's
access tariff effective January 1, 1998. No Change.
c. Cost Study of Interstate Access Service That Remain Subject to
Price Cap Regulation: The 1996 Act has created an unprecedented
opportunity for competition to develop in local telephone markets. We
recognize, however, that competition is unlikely to develop at the same
rate in different locations, and that some services will be subject to
increasing competition more rapidly than others. We also recognize,
however, that there will be areas and services for which competition
may not develop. We will adopt a prescriptive ``backstop'' to our
market-based approach that will serve to ensure that all interstate
access customers receive the benefits of more efficient prices, even in
those places and for those services where competition does not develop
quickly. To implement our backstop to market-based access charge
reform, we require each incumbent price cap LEC to file a cost study no
later than February 8, 2001, demonstrating the cost of providing those
interstate access services that remain subject to price cap regulation
because they do not face substantial competition. No Change.
The Order also adopts the following collection of information:
d. Tariff Filings: In the First Report and Order, the Commission
requires the filing of various tariffs, with modifications. For
example, the FCC directs incumbent LECs to establish separate rate
elements for the multiplexing equipment on each side of the tandem
switch. LECs must establish a flat-rated charge for the multiplexers on
the SWC side of the tandem, imposed pro-rata on the purchasers of the
dedicated trunks on the SWC side of the tandem. Multiplexing equipment
on the EO side of the tandem shall be charged to users of common EO-to-
tandem transport on a per-minute of use basis. These multiplexer rate
elements must be included in the LEC access tariff filings to be
effective January 1, 1998. In the Second Order on Reconsideration, the
FCC clarifies that the TIC exemption for access customers using
competitive transport providers only applies to that portion of the
residual per-minute TIC that is related to transport facilities, and
directs incumbent local exchange carriers to include, in their access
tariff filing, the amount of per-minute transport interconnection
charge (TIC) they anticipate will be allocated to facilities-based rate
elements in the future.
e. Third-Party Disclosure: In the Second Order on Reconsideration,
the Commission requires LECs to provide IXCs with customer-specific
information about how many and what type of presubscribed interexchange
carrier charges (PICCs) they are assessing for each of the IXC's
presubscribed customers. One of the primary goals of our First Report
and Order was to develop a cost-recovery mechanism that permits
carriers to recover their costs in a manner that reflects the way in
which those costs are incurred. Without access to information that
indicates whether the LEC is assessing a primary or non-primary
residential PICC, or about how many local business lines are
presubscribed to a particular IXC, the IXC will be unable to develop
rates that accurately reflect the underlying costs.
SYNOPSIS OF REPORT AND ORDER
I. Presubscribed Interexchange Carrier Charge
A. Implementation Issues
1. Background
1. In the First Report and Order, we adopted common line rate
structure modifications that will permit price cap LECs to shift
gradually from a cost-recovery mechanism that recovers a significant
portion of non-traffic sensitive common line costs through per-minute
CCL charges to one that recovers these costs through flat-rated
charges. The cost-recovery mechanism we adopted retains the current
$3.50 ceiling on the SLC for primary residential and single-line
business lines and increases the SLC ceilings on other lines to permit
LECs to recover a greater amount of the common line costs through flat-
rated charges assessed on the end user. To the extent that SLC ceilings
prevent price cap LECs from recovering their allowed common line
revenues from end users, LECs will recover the shortfall, subject to a
maximum charge, through a presubscribed interexchange carrier charge
(PICC), a flat, per-line charge assessed on the end-user's
presubscribed interexchange carrier.
2. The PICC, which over time will shift revenue recovery from the
per-minute CCL charges to a flat-rated charge assessed on IXCs, was
designed to allow price cap LECs to recover the difference between
revenues collected through the SLCs and the total revenue permitted for
the common line basket. In order to provide price cap LECs and IXCs
with adequate time to adjust to the new rate structure, we adopted an
approach that will gradually phase in the PICC over time. Specifically,
effective January 1, 1998, we capped PICCs for primary residential and
single-line business lines at $0.53 per month for the first year.
Beginning January 1, 1999, the ceiling on the monthly PICC on primary
residential and single-line business lines will be adjusted for
inflation and will increase by $0.50 per year until it equals the
monthly per-line common line revenues and residual interconnection
charge revenues permitted under our price cap rules, less the maximum
SLC charge allowed under our rules.
3. In addition, to the extent that the SLC ceilings on all lines
and the PICC ceilings on primary residential and single-line business
lines prevent recovery of the full common line revenues permitted by
our price cap rules, the new rate structure we adopted for price cap
LECs permits these carriers to recover the shortfall through PICCs
assessed on non-primary residential and multi-line business lines. For
the first year, the ceiling on the PICC will be $1.50 per month for
non-primary residential lines and $2.75 per month for multi-line
business lines.
4. Beginning January 1, 1999, the PICC ceilings for price cap non-
primary residential and multi-line business lines will be adjusted for
inflation and will increase by a maximum of $1.00 and $1.50 per year,
respectively, until incumbent LECs can recover all of their permitted
common line revenues through a combination of flat-rated SLCs and
PICCs. As the PICC ceilings on primary residential and single-line
business lines increase, the residual per-minute CCL charge will
decrease until it is eliminated. After the residual per-minute CCL
charge is eliminated and
[[Page 56124]]
the PICC ceilings for primary residential and single-line business
lines increase, price cap LECs will reduce their PICCs on non-primary
residential and multi-line business lines by a corresponding amount.
Reductions will be targeted first to the PICCs on multi-line business
lines until the PICCs for those lines are equal to the PICCs for non-
primary residential lines. Thereafter, price cap LECs will apply the
annual reductions to both classes of customers equally until the
combined SLCs and PICCs for primary residential and single-line
business lines recover the full average per-line common line revenues
permitted under our price cap rules, and the additional PICCs on non-
primary residential and multi-line business lines no longer recover
common line revenues.
2. Sprint's Petition for Reconsideration
5. On July 11, 1997 Sprint filed a Petition for Expedited
Reconsideration and Clarification in which it requests that the
Commission reconsider certain implementation issues related to the
PICCs adopted in the First Report and Order. Sprint argues that these
issues need to be resolved prior to January 1, 1998, the effective date
of the PICCs. Specifically, Sprint requests that the Commission require
LECs to provide IXCs with customer-specific billing information that
specifies the number and type(s) of PICCs LECs will be assessing for
each of the IXCs' presubscribed customers. Sprint asserts that because
LECs will be assessing IXCs different PICCs for primary and non-primary
residential lines, IXCs may choose to develop different residential
rates for these lines. Sprint argues that IXCs will therefore need the
customer-specific PICC information in order to develop separate toll
rates for calls originated on these lines.
6. In addition, Sprint contends that in a typical multi-line
business configuration IXCs are unable to determine how many multi-line
business lines are presubscribed to them. According to Sprint, unless
the LECs provide customer-specific PICC information, IXCs are unable to
know how many of these local lines exist or how many PICCs are being
assessed for these lines. Sprint argues that IXCs need access to
customer-by-customer PICC data so that they have the ability to pass
through the PICCs directly to their customers if they so choose.
7. In its petition, Sprint seeks guidance from the Commission on
how LECs should assess PICCs where a LATA encompasses territory in more
than one state, and a customer has one IXC handling intraLATA
interstate calls and another IXC handling interLATA interstate calls.
Sprint suggests that the PICC should be assessed on the interLATA
interstate carrier.
3. Discussion
8. We grant Sprint's request that LECs be required to provide IXCs
with customer-specific information about the number and type(s) of
PICCs they are assessing for each of the IXC's presubscribed customers.
We agree with Sprint that this measure is necessary to provide IXCs the
opportunity to develop a rate structure that recovers these costs in a
cost-causative manner. One of the primary goals of our First Report and
Order was to develop a cost-recovery mechanism that permits carriers to
recover their costs in a manner that reflects the way in which those
costs are incurred. If an IXC were to receive a bill for the aggregate
amount of the PICCs assessed on its presubscribed lines and did not
have access to information that indicates for which lines the LEC is
assessing a primary or non-primary residential PICC, the IXC would be
unable to develop residential rates that accurately reflect the
underlying costs of providing service over those lines. Similarly, in a
multi-line business configuration, without information about the number
of local business lines that are presubscribed to a particular IXC and
the amount of PICCs being charged for which lines, the IXC will not be
able to recover the costs of serving its customers in an efficient
manner. We therefore conclude that LECs must provide IXCs with
information about how many and what type of PICCs they are charging
IXCs for each customer.
9. We conclude that there is insufficient evidence in the record to
support arguments that providing customer-specific PICC data to IXCs
will be overly burdensome and that discrepancies can be resolved
through normal billing reconciliation processes. In order to bill IXCs
the proper amount, LECs will presumably have to create a database for
purposes of determining how many lines are presubscribed to each IXC
and what type of PICC is being assessed for each of those lines. We
conclude that LECs must provide this information to the IXCs to enable
them to develop rate structures that will recover these costs
efficiently.
10. We also grant Sprint's request to clarify how LECs assess PICCs
in situations where a customer for a particular line has one
presubscribed carrier for interstate intraLATA calls and another for
interstate interLATA calls. Dividing the PICC between two IXCs based on
actual calling patterns would create an unnecessary administrative
burden that would outweigh any minimal benefit. Moreover, LATA
boundaries that cross state lines are the exception rather than the
rule, and interstate calls within a LATA thus represent only a small
portion of interstate traffic. We therefore conclude that in such
cases, the PICC shall be assessed on the interstate interLATA carrier.
B. PICC Calculation
1. Background
11. In its petition for reconsideration, Sprint argues that the
Commission's formula for calculating PICCs will not allow sufficient
recovery of loop costs, because the formula relies on base period
revenues divided by the projected number of loops in use for such
annual period. Sprint contends that such a formula would force PICCs
downward because revenues determined on a base period would not
adequately reflect revenue growth commensurate with projected growth in
loops. In turn, Sprint argues, under-recovery of loop costs through
flat-rated PICCs will necessitate greater reliance on usage charges to
recover non-traffic-sensitive costs, undermining the Commission's
efforts to align access charges with the manner in which costs are
incurred.
2. Discussion
12. We clarify in this Order that the rule describing the formula
for calculating PICCs relies on projected revenues and projected loop
counts. The use of projected revenues and projected loop counts is
applicable to PICC calculations conducted under sections 69.153(c) and
69.153(d) of our rules. We note that the rule setting forth the method
of calculating SLCs expressly incorporates projected revenues and
projected loop numbers. Although the PICC rule does not expressly state
that projected revenues are to be used in the formula, the rule has
been designed to use projected revenues rather than revenues derived
from a base period. Accordingly, there is no ``mismatch'' caused by
dividing projected loops by base period revenues. We will, however,
amend our rules to state explicitly that the projected revenues must be
used to conduct the PICC calculation.
13. In our First Report and Order, we adopted section 69.153(c)(1)
in which we directed incumbent LECs to calculate the maximum monthly
PICC for primary residential subscriber lines and single-line business
lines by using ``one twelfth of the sum of annual common line revenues
and residual
[[Page 56125]]
interconnection charge revenues permitted under our price cap rules
divided by the projected average number of local exchange service
subscriber lines in use during such annual period, minus $3.50.'' On
further consideration of section 69.153(c)(1), we recognize that, as
written, this rule may not permit an incumbent LEC to recover its
residual interconnection charge revenues from primary residential and
single-line business lines when its maximum primary residential and
single-line business SLC is less than $3.50. On our own motion,
therefore, we take this opportunity to reconsider this issue and revise
section 69.153(c)(1). We replace the phrase ``minus $3.50'' with the
phrase ``minus the maximum subscriber line charge computed pursuant to
section 69.152(d)(2).''
In the First Report and Order, we also adopted section
69.153(d)(2)(i), which instructs incumbent LECs how to calculate the
maximum monthly PICC for multi-line business lines when the maximum
charge for the non-primary residential PICC is at its cap. The rule was
intended to provide that the calculation be performed by taking ``[o]ne
twelfth of the annual common line, residual interconnection charge, and
Sec. 69.156(a) marketing expense revenues permitted,'' less the maximum
amounts permitted to be recovered through the SLC, the other PICCs, and
other marketing expense recovery mechanisms. In crafting the language
of the rule, however, we identified the maximum amount permitted to be
recovered from the non-primary residential PICC as section
69.153(d)(1)(i) instead of section 69.153(d)(1). We correct this error
to take into account the fact that the cap on the non-primary
residential PICC limits the amount that charge can recover.
C. Application of PICCs to Centrex Lines
1. Background
15. The First Report and Order requires that the PICC recover
common line revenues not recovered from the SLC and other common line
charges, and that the PICC be applied on the same basis as the SLC.
Centrex arrangements are charged more SLCs than are similarly-sized PBX
arrangements. Consequently, the First Report and Order requires that
Centrex arrangements be assessed a greater number of PICCs than are
similarly-sized PBX arrangements.
22. Petitions
16. USTA, ICA, and the County of Los Angeles (Los Angeles) assert
that the number of PICCs that are assessed on Centrex arrangements
should equal the number of PICCs assessed on similarly-sized PBX
arrangements. They contend that the revenues recovered from Centrex
arrangements by the PICC are unrelated to the costs of providing
Centrex service. They argue that Centrex customers currently pay one
SLC per line, which recovers the full interstate portion of common line
costs used to provide Centrex service. They further contend that the
disproportionate level of PICC Centrex charges unfairly subjects
Centrex systems to anticompetitive and arbitrary charges, which is
contrary to the clear intent of Congress that subsidies be explicit and
cost-based.
17. ICA observes that the Commission's rules appear to apply to
lines that are toll restricted, thereby penalizing customers that
attempt to control costs and reduce the possibility of toll fraud.
According to ICA, many Centrex customers require that a portion of
their Centrex lines be toll restricted. ICA argues that toll-restricted
Centrex lines should not be subject to any PICCs.
18. Petitioners propose that LECs be permitted to reflect trunk
equivalency. They propose that the PICC on Centrex lines be assessed
using a line-to-trunk equivalency ratio. Such ratios are already set
forth in intrastate tariffs. In the absence of an intrastate tariff,
the LECs could develop such a ratio, or there could be agreed upon
industry relationships between the Centrex lines and trunks. USTA also
suggests that LECs should be permitted to count Network Access
Registers (NARs) for purposes of assessing the PICC on Centrex
customers. USTA contends that NARs are equivalent to PBX trunks since
one NAR provides one link to the switch. In an ex parte filing, USTA
has indicated that in order to address the complexity and verification
problems of using individual state tariffs or individual company
ratios, the Commission should adopt a uniform line-to-trunk equivalency
ratio of 9 to 1.
3. Discussion
19. We grant the petitions of USTA, ICA, and Los Angeles that the
PICC be assessed on Centrex lines using a line-to-trunk equivalency
ratio. For the reasons discussed below, we adopt USTA's proposal to use
a uniform 9:1 ratio. In large part, the multi-line business PICC is not
a cost-based charge, but a contribution, ``for a limited period, to the
recovery of common line costs that incumbent LECs incur to serve
single-line customers.'' It is therefore reasonable to consider non-
cost factors in determining how to assess the PICC. We conclude that
with respect to the PICC, Centrex customers should be treated similarly
to PBX customers, because the two arrangements are functionally
equivalent.
20. Petitioners state that Centrex and PBX arrangements are
functionally equivalent, and opposing parties do not dispute this
assertion. We do not wish to encourage a large customer to choose one
of these arrangements, PBX, over another, Centrex, simply because, as a
result of its IXC being charged substantially more PICCs, i.e., non-
cost-related charges, for Centrex service, the PBX service becomes
cheaper.
21. In addition, many Centrex users are government, education, and
health care facilities. We note that more than 25 percent (18,640) of
Los Angeles's 67,000 Centrex lines, which do not include Los Angeles
County public schools are used by health care facilities. Without using
a line-to-trunk equivalency ratio, Los Angeles could be required to pay
an additional $2.8 million annually in PICCs, if its presubscribed IXC
passes these charges through. New York could see the implementation of
the PICC increase its rates by over $2.4 million annually, if these
charges are passed through by its IXC. Boston University, with its
10,000 Centrex lines, faces a potential increase of $330,000 per year
in PICCs. By granting the petitions for relief, we ensure that all
multi-line business customers shoulder a similar portion of the PICC
contribution, irrespective of whether they use Centrex or PBX
arrangements.
22. Centrex arrangements are charged SLCs on a per-line basis, even
though this difference results in a higher rate than equivalent PBX
arrangements have to pay. That differential is due to the additional
common line costs that Centrex lines incur. Historically, the
Commission has declined to apply a trunk equivalency ratio for Centrex
services, under the rationale that ``[i]f Centrex uses more lines, then
Centrex necessarily creates more line costs.'' Unlike the SLC, in most
instances, the multi-line business PICC will not recover loop costs of
multi-line businesses. Instead, it will contribute to the recovery of
the cost of single-line business and residential loops, which have
lower SLC and PICC caps. Centrex and PBX are functionally equivalent in
most respects. Taking these factors into consideration, it would be
inequitable to require Centrex users to cause its presubscribed IXC to
bear a significantly larger PICC contribution than do similarly-sized
PBX users.
[[Page 56126]]
23. Therefore, we will limit the PICC charges that may be assessed
on IXCs serving Centrex customers on a line-to-trunk equivalency basis,
except where the multi-line business SLC ceiling does not permit the
recovery of all interstate-allocated loop costs from the end user. In
those instances, a somewhat greater PICC--one that includes the
difference between the per-line loop cost and the multi-line business
SLC cap--will be assessed on Centrex lines. Thus, for example, if on
January 1, 1998, in a particular region the loop cost is $9.40, and the
maximum permitted multi-line business PICC is being assessed, i.e.,
$2.75, each Centrex line would be assessed a $0.71 PICC, which is equal
to one-ninth of $2.75 plus the difference between the $9.40 loop cost
and the $9.00 SLC.
24. In determining the appropriate line-to-trunk equivalency ratio,
we consider several factors. First, we observe that many states, but
not all, already have trunk equivalency tables for their intrastate
tariffs. USTA has indicated that although these tables are similar,
they are not identical. For example, USTA states that a Centrex
customer with 70 lines is equivalent to a PBX customer with 13 trunks,
while Ameritech states that in Illinois, the equivalency tariff for 70
Centrex lines is 8 PBX trunks. Adopting the trunk equivalency ratios
set out in intrastate tariffs would result in different equivalency
ratios being used in different states and would not provide a trunk
equivalency ratio for many states. Because the trunk equivalency ratio
we adopt today is for an interstate charge, a national standard for
trunk equivalency ratio is appropriate.
25. We also desire administrative ease in calculating trunk
equivalency. Adoption of a single ratio would simplify the assessment
of PICCs on Centrex lines by eliminating the use of multiple ratios
from multiple tables or state tariffs. IXCs would have the benefit of
knowing that they will be assessed a set fraction of the PICC for each
Centrex line that is presubscribed to their service, even when Centrex
customers have lines presubscribed to different IXCs. Therefore, we
have elected to adopt a single trunk equivalency ratio for establishing
PICC charges for all Centrex lines. USTA suggested a ratio of nine (9)
Centrex lines to one (1) PBX trunk. It bases its recommendation on the
average of the weighted average trunk equivalency ratios or
relationship between NARs and Centrex lines that are employed in
several jurisdictions. Applying a 9:1 ratio would result in a maximum
PICC on Centrex lines of approximately $0.30 per line in 1998 for the
overwhelming majority of Centrex lines. We note that the ratio under
some state tariffs can approach 18 to 1 for certain Centrex customers.
Reducing the PICC from up to $2.75 to less than $0.31 achieves the goal
of spreading the PICC contribution more equitably among multi-line
business customers. Using a more complicated approach to establish
equivalency may only add a marginal benefit, increasing or reducing
PICCs by less than $0.16, and does not outweigh the additional
administrative costs. We adopt the 9:1 ratio proposed by USTA, finding
it to be reasonable and administratively simple.
26. Time Warner is correct in observing that our treatment of
Centrex arrangements differs from how we addressed ISDN service in the
First Report and Order. There, we set the SLC for PRI ISDN to be up to
five times the amount assessed multi-line business subscribers, because
that figure reflects the ratio of non-traffic sensitive loop costs
associated with PRI ISDN service to non-traffic sensitive costs
associated with other multi-line business loops. We also elected to
permit incumbent LECs to assess up to five PICCs on PRI ISDN service
because ``prohibiting incumbent LECs from charging as many as five
PICCs for PRI ISDN service could prevent them from recovering the
common line costs associated with providing PRI ISDN service in cases
where the common line costs exceed the SLC ceiling.''
27. In both our treatment of ISDN lines and Centrex lines, our goal
is to establish an equitable sharing of the multi-line business PICC.
Prior to the adoption of the First Report and Order, we had no rules
relating to the PICC. We had no evidence to the contrary that the
assessment of five PICCs for PRI ISDN was inappropriate, so we elected
to be consistent as between SLC and PICC assessment. Previously,
however, ISDN lines could be charged up to 24 SLCs. The adjustment from
24 SLCs to five SLCs and five PICCs does not create undue hardship on
ISDN subscribers, and the First Report and Order should reduce their
overall rates.
28. Time Warner also argues that imposing the PICC on Centrex on a
per-line basis is part of the Commission's access charge transition to
a more cost-causative rate structure. Although the multi-line PICC is
part of our transition, this alone does not justify requiring Centrex
customers to make a greater contribution toward recovery of the loop
cost of residential customers than do PBX customers. Teleport's
assertion that petitioners are exaggerating the impact of the PICC on
Centrex users, because the amount of the charge is substantially less
than the SLC, ignores the fact that the SLC recovers the additional
costs imposed by Centrex customers, while the PICC does not.
29. We deny ICA's petition that we not assess PICCs on toll-
restricted Centrex lines. Although the PICC is assessed upon IXCs for
all lines that are presubscribed to an IXC, the PICC is not a charge
based on toll usage or on the ability to place toll calls. The
Commission anticipated that some lines might not be used for long
distance when it adopted a rule allowing PICCs to be assessed directly
upon end users for any line not presubscribed to an IXC. The fact that
toll-restricted Centrex lines incur no long-distance charges is,
therefore, irrelevant. Also, costs for these lines are assigned to the
interstate jurisdiction by separations, regardless of whether the lines
are toll-restricted.
II. Transport
A. TIC Exemption
1. Background
30. The Commission created the TIC originally as a residual charge
to ensure that its adoption of the 1992 interim transport rate
structure was revenue-neutral for the incumbent LECs. As such, the
Commission required that the TIC be assessed on a per-minute basis on
all interstate access customers that interconnect with the LEC switched
access network. A portion of the TIC represented the 80 percent of the
costs of the tandem switch remaining after the Commission set the
tandem-switching rate to recover only 20 percent of the tandem-
switching revenue requirement. The rest of the revenues collected from
the TIC represented costs previously recovered through transport
charges that could not, at that time, be associated definitively with
specific facilities or services related to transport. The Commission
stated in the First Transport Order that, in addition to tandem-
switching costs, the TIC likely recovered: (a) Costs more appropriately
recovered through other rate elements; (b) costs that more properly
belong in the intrastate jurisdiction, but that the Part 36
jurisdictional separations rules allocate to the interstate
jurisdiction; (c) costs of facilities that were then in place, but not
needed for transport under the more efficient transport rate structure
being adopted; and (d) costs of not-fully-depreciated copper plant that
was nevertheless being replaced by less expensive fiber optic
facilities. Transport Rate Structure and Pricing, Report and Order and
Further Notice of Proposed Rulemaking, 57 FR 54717 (November 20, 1992)
(First Transport Order). The Commission also cited
[[Page 56127]]
assertions by parties to that proceeding that the TIC also recovered
(e) general support facilities (GSF) and central office equipment (COE)
maintenance expenses and GSF investment that were overallocated to the
transport category; and (f) additional costs that the Commission had
not then identified.
31. In reviewing the Commission's interim transport rate structure,
the United States Court of Appeals for the District of Columbia Circuit
(D.C. Circuit) found that the just and reasonable rates required by
Sections 201 and 202 of the Communications Act, 47 U.S.C. Secs. 201-
202, must ordinarily be cost-based, absent a clear explanation of the
Commission's reasons for a departure from cost-based ratemaking.
Competitive Telecommunications Ass'n v. FCC, 87 F.3d 522, 529 (D.C.
Cir. 1996) (``CompTel''). The D.C. Circuit, therefore, directed the
Commission to develop a cost-based alternative to the TIC, or to
provide a reasoned explanation for its departure from the principles of
cost-based ratemaking.
32. In the First Report and Order, we reformed the TIC and set
forth a plan that will eliminate per-minute TIC charges over the next
few years. We initially identified TIC amounts that could be associated
with particular network facilities and directed incumbent LECs to
reallocate these TIC amounts to access rate elements more closely
corresponding to those network facilities. These LECs will perform the
required reallocations in access tariffs filed to become effective
January 1, 1998, with some exceptions. For example, the portion of
tandem-switching costs that the Commission initially allocated to the
TIC will be reallocated to the tandem-switching rate element in three
approximately equal steps concluding January 1, 2000. In addition, the
costs of the incumbent LECs' tandem-switched transport transmission
facilities that are not recovered from tandem-switched transport users
under the unitary rate structure will be recovered through the TIC
until July 1, 1998.
33. For price cap LECs, the ``residual TIC,'' consisting of amounts
that the LEC has not reallocated as described above, will be recovered
through per-line PICCs, to the extent possible while remaining within
the PICC caps. Residual TIC amounts that the price cap LEC cannot
recover through PICCs will be recovered through a per-minute TIC on
originating access, up to a cap, with any remainder recovered from per-
minute charges assessed on terminating access.
In the First Report and Order, we recognized that the per-minute
TIC, because it is assessed on all transport minutes carried on
facilities that interconnect with the incumbent LEC's local switch, may
give the incumbent LEC a competitive advantage in the transport market.
We therefore provided a TIC exemption for switched minutes carried by
competitive access providers (CAPs) that interconnect with the
incumbent LEC switched access network at the end office, stating that,
``if the incumbent LEC's transport rates are kept artificially low and
the difference is recovered through the TIC, competitors of the
incumbent LEC pay some of the incumbent LEC's transport costs.'' This
TIC exemption is scheduled to take effect on January 1, 1998.
2. Petitions for Reconsideration and Petitions for Stay
a. AT&T and Teleport. 35. On reconsideration, AT&T and Teleport
request that we permit the per-minute residual TIC exemption for
switched minutes carried by CAPs that interconnect with the incumbent
LEC switched access network at the end office to take effect
immediately, rather than on January 1, 1998. According to Teleport, the
Commission, having recognized that the imposition of TIC charges on
CAP-transported minutes is ``inconsistent with the pro-competitive
goals of the 1996 Act,'' should not permit the practice to continue
throughout the balance of calendar 1997.
b. RCN. 36. RCN argues that the TIC exemption contained in the
First Report and Order preserves the incumbent LECs' competitive
advantage because it exempts CAP-transported minutes only from the
``residual'' TIC. In making this argument, RCN interprets the term
``residual TIC'' to include only non-facilities-related TIC amounts.
Under RCN's interpretation, the ``residual TIC'' would not include
facilities-related TIC amounts that will remain in the TIC until they
are reallocated as late as January, 2000.
c. U S West and NYNEX Petitions for Stay. 37. NYNEX and U S West
separately have filed petitions requesting that the Commission stay the
effectiveness, pending appeal, of 47 CFR 69.155(c), the rule we adopted
in the First Report and Order prohibiting local exchange carriers from
assessing the per-minute residual TIC on traffic that uses the LEC's
local switching services, but that does not use the LEC's local
transport services. NYNEX and U S West argue that such a stay is
warranted because they are likely to prevail on the merits of their
respective appeals and that the balance of equities favors a stay.
NYNEX and U S West further argue that the rule should be stayed in its
entirety, to allow them to recover the entire per-minute TIC, without
regard for the transport provider. In the alternative, however, NYNEX
requests a partial stay to allow it to so recover the non-facilities-
related portion of the TIC.
38. Procedurally, NYNEX maintains that the Commission failed to
offer an adequate opportunity for public comment on the residual TIC
exemption, in that the Commission's Notice, Access Charge Reform, CC
Docket No. 96-262, Notice of Proposed Rulemaking, 62 FR 6270 (January
31, 1997) (Notice), failed to provide adequate notice of the TIC
exemption and that the Commission improperly relied on a CompTel/
Teleport ex parte presentation made three weeks before the Order was
adopted.
39. Substantively, NYNEX argues that the Commission's decision to
prohibit assessment of the residual TIC on minutes that use CAP
transport networks is inconsistent with the Commission's findings that
a large portion of the TIC is not related to any specific transport or
other facilities.
40. NYNEX also argues that the Commission has failed to explain why
it is reasonable for the LEC to recover both service-related and non-
service-related TIC amounts from PICCs, but neither component from the
per-minute residual TIC.
41. NYNEX also argues that the use of price cap X-factor reductions
to decrease the per-minute TIC will effectively reallocate the per-
minute residual TIC to other rate elements as the per-minute TIC is
reduced to the exclusion of all other rate elements. According to
NYNEX, the residual TIC is completely excluded only to the extent that
the X-factor targeting has not reallocated it to a permitted rate
element. NYNEX argues that the Commission has not offered a
justification for disallowing TIC recovery only during this transition
period.
42. NYNEX argues that the CAP TIC exemption is arbitrary in that it
will have a disproportionately harsh effect on NYNEX, and that this
non-uniform impact will hinder the development of ``full and fair''
competition. Similarly, U S West argues that, by making it difficult or
impossible for it to collect the per-minute TIC, the TIC exemption is
contrary to the Commission's decision not to disallow any portion of
the current TIC.
43. NYNEX also argues that the TIC exemption contradicts the
Commission's conclusion that access
[[Page 56128]]
reform, in itself, should not produce overall rate reductions because
the price cap LECs' per-minute TIC revenues are likely to be less than
those calculated in the restructure. As a result, the price cap LECs
will be unable to collect the full amount of revenues from per-minute
residual TIC rates or PICCs that will be included in their January 1,
1998, tariff revisions.
44. NYNEX and U S West argue that an exemption for the service-
related portion of the TIC is inconsistent with the Commission's
continued reliance on subsidization of tandem-switching rates by
direct-trunked transport customers until December 31, 1999.
45. U S West argues that, after January 1, 1998, the TIC will
consist of implicit tandem switching and universal service support
subsidies (including the higher costs of providing rural transport) and
that the TIC exemption results in a collection system for this subsidy
that is non-sustainable, discriminatory, and inequitable.
3. Discussion
46. We decline to modify the effective date of 47 CFR 69.155(c) as
AT&T and Teleport request. Although some of the Commission's actions to
reform the interstate access charge system took effect in access
tariffs filed to become effective July 1, 1997, the majority of the
Commission's rate structure changes take effect on January 1, 1998, or
later. Because the TIC exemption at issue here is one part of our
larger effort to reform the system of interstate access charges to
preserve and promote competition, we believe that the rule should take
effect on January 1, 1998, at the same time as many of our other rules
relating to the transport rate structure. Incumbent LEC access tariffs
filed to become effective on that date will reallocate many of the
currently-identified facilities-related TIC amounts to other rate
elements. In addition, on January 1, 1998, for the first time, the
incumbent LECs will begin collecting remaining TIC amounts from PICCs
assessed to IXCs on a flat-rate, per-line basis. Because a portion of
the TIC, including some facilities-related TIC amounts, will be
allocated to PICCs on January 1, 1998, we conclude that the extent of
the exemption we adopt here will not be evident until these tariff
revisions take effect. Thus, we conclude that the exemption should take
effect only in concurrence with the implementation of the PICC.
47. We agree with RCN and MCI that we should clarify the extent of
the TIC exemption described in the First Report and Order. In addition,
in response to concerns raised in NYNEX's and U S West's petitions for
stay, we reconsider on our own motion our adoption of the TIC exemption
provided in the First Report and Order. 47 CFR 1.108. Under long-
established Commission practice, the filing of a petition for
reconsideration tolls the thirty day period our rules provide for sua
sponte reconsideration. E.g., Central Fla. Enters., Inc. v. FCC, 598
F.2d 37, 48 n.51 (D.C. Cir. 1978), cert. dismissed, 441 U.S. 957
(1979), and cert. denied 460 U.S. 1084 (1983); Radio Americana, Inc. 44
F.C.C. 2506, 2510 (1961). Upon further consideration, we conclude that
the TIC exemption provided in the First Report and Order could provide
an unjustified windfall to competitive providers of local transport.
Because the non-facilities-related portion of the residual TIC does not
relate to the use of the incumbent LEC's interstate transport
facilities, we need not exempt competitors from paying this portion of
the TIC in order to prevent them from paying for the incumbent LEC's
transport when that transport is not used. Therefore, incumbent LECs
may continue, after January 1, 1998, to assess upon all local switching
traffic that portion of their per-minute TIC charges that they do not
anticipate will be reallocated in the future to facilities-based rate
elements. This is the only portion of the per-minute TIC, however, that
may be assessed upon traffic that uses the incumbent LEC's local
switching services, but that does not use the incumbent LEC's local
transport services. Under this rule, interexchange traffic that is
switched at the incumbent LEC's local switch, but that is not
transported on the incumbent LEC's local transport network, will be
subject to the per-minute TIC, less the portion of the per-minute TIC
attributable to incumbent LEC tandem-switching and tandem-switched
transport transmission costs that have not yet been reallocated to
facilities-based rate elements. In access tariff revisions filed to
become effective January 1, 1998, incumbent LECs must show all such
facilities-related amounts that they anticipate will be reallocated in
the future, including appropriate documentation, and calculate separate
per-minute TIC charges for those minutes that use the incumbent LEC's
local transport facilities and those that do not.
48. In remanding the interim rate structure, the D.C. Circuit
instructed the Commission to ``move expeditiously * * * to a cost-based
alternative to the [TIC], or to provide a reasoned explanation of why a
departure from cost-based ratemaking is necessary and desirable in this
context.'' For our rate structure to be ``cost-based,'' costs must be
recovered (1) only from the party that causes the costs to be incurred;
and (2) in the manner in which the costs are incurred (e.g., non-
traffic-sensitive costs should be recovered on a non-traffic sensitive
basis).
49. Our First Report and Order identified certain costs within the
TIC that more properly should be recovered through other access rate
elements. These costs include additional trunking costs left
unrecovered by rates set assuming a uniform loading of 9000 minutes of
use per month on shared trunks, rather than rates set using actual
traffic levels, as well as misallocated costs of central office
equipment maintenance. In addition, we identified costs related to
multiplexing, SS7 signalling, and host/remote trunking that are
currently recovered through the TIC. LECs must reallocate all of these
costs to facilities-based rate elements in access tariffs filed to
become effective January 1, 1998. In addition, one third of the 80
percent of the costs of the tandem switch currently assigned to the TIC
will be reallocated to the tandem switching rate element on that date.
50. After January 1, 1998, the costs contained in the TIC that the
Commission has identified as facilities-related will have two primary
sources. The majority of the facilities-related TIC will consist of the
portion of the incumbent LEC's tandem-switching costs not yet
reallocated to the tandem-switching rate element. These costs will be
reallocated to the tandem-switching rate element in two additional
installments in tariffs filed to become effective on January 1, 1999,
and January 1, 2000. In addition, from January 1, 1998, until July 1,
1998, the TIC will also recover the costs of tandem-switched transport
transmission facilities that are not recovered by the incumbent LEC
from tandem-switched transport customers electing the unitary rate
structure. These TIC amounts are also facilities-related. In the First
Report and Order, we directed incumbent LECs to remove costs from the
TIC ``equal to the additional revenues realized from the new tandem-
switched transport rates * * * implemented in accordance with the
[final transport] rate structure.'' Because the three-part rate
structure will not take effect until July 1, 1998, we require incumbent
LECs to estimate in their tariffs filed to become effective January 1,
1998, the amount by which their tandem-switched transport transmission
revenues will increase under the three-part rate structure. This
amount, currently contained in the TIC, is facilities-related and
therefore subject to the exemption described in this order.
[[Page 56129]]
51. Neither the tandem-switching costs nor the tandem-switched
transport transmission costs contained in the TIC relate to facilities
used by purchasers of competitive alternatives to the incumbent LEC's
transport facilities. The D.C. Circuit remanded the interim transport
rate structure to the Commission in part because that rate structure
did not recover the costs of the tandem switch in a cost-causative
manner. Our First Report and Order, in reallocating these costs,
remedies this situation as expeditiously as possible while minimizing
the potential for rate shock that otherwise might accompany such a
shift. Because these costs are incurred on behalf of the incumbent
LEC's own transport operation, however, it would be inconsistent with
the principles of cost-causation to prolong the recovery of these costs
from users of competing transport facilities.
52. Our approach to access reform relies first on increasing
market-based pressures as competition develops to place downward
pressure on access charge levels. We conclude that, for this approach
to succeed, we should develop a rate structure that permits maximum
competitive pressure on each incumbent LEC revenue stream, absent
compelling public policy reasons to the contrary. It would impair the
effectiveness of our market-based approach for us to insulate a
significant portion of the costs of the incumbent LEC's transport
facilities from competition by mandating recovery of these costs from
incumbent LEC competitors.
53. We recognize that, during the two-year transition period, our
rules will continue to prohibit the incumbent LEC from allocating the
full, embedded cost of the tandem switch to the tandem-switching rate
element. The effect of our three-step reallocation process will be to
permit a continued subsidy of the incumbent LEC's tandem switch by
users of the incumbent LEC's direct-trunked transport facilities and
minimize any rate shock for tandem-switched transport customers.
Because the incumbent LEC's competitors offering transport services
will not be subject to this subsidy, they may enjoy a slight
competitive advantage over the incumbent LEC.
54. We find, however, that the competitive benefits to be gained
from recovering these costs only from the incumbent's customers and not
from customers using competitive transport providers outweigh any
potential dangers resulting from the small, temporary asymmetry caused
by the TIC exemption we provide here. Even though the full costs of the
incumbent LEC's tandem switch will not be borne by the users of the
tandem switch until January, 2000, the effects of the TIC exemption
will be reduced substantially before that time as the incumbent LEC
collects an increasing proportion of the tandem-switching costs
remaining in the TIC through PICCs. As discussed below, we continue to
permit the incumbent LEC to assess the full PICC on each of its loops,
without regard for the type or provider of the transport the IXC uses
to transport the minutes generated by that loop from the end office to
the IXC's facilities. As the portion of the incumbent LEC's tandem-
switching costs that is recovered through the per-minute TIC decreases,
any potential adverse effects of this small asymmetry will rapidly
decrease. In contrast, if we were to mandate recovery of this portion
of the incumbent LEC's tandem-switching costs from all customers using
the incumbent LEC's local switching facilities, without regard for
whether they make use of the incumbent LEC's transport facilities, we
would insulate this revenue from much of the pressure we anticipate
will develop as competitors enter the local service and access markets.
The resulting delay in competitive entry would be harmful to consumers,
who will benefit most from increased competition.
55. We revise the TIC exemption contained in our First Report and
Order, however, to permit the incumbent LEC to impose the remaining
non-transport costs assigned to the TIC on all minutes switched by the
incumbent LEC at its end office, without regard for whether those
minutes are carried on incumbent LEC or competitive transport
facilities. In contrast to the portion of the incumbent LEC's tandem-
switched transport costs that will remain in the TIC after January 1,
1998, we did not find in the First Report and Order that the remainder
of the TIC could be associated definitively with particular interstate
facilities on the record before us. Instead, we stated that a portion
of these TIC amounts may result from the operation of the
jurisdictional separations process, which allocates the costs of
private line and switched services differently between the state and
interstate jurisdictions, despite the fact that these two types of
services use comparable facilities. As a result, we recognized in the
First Report and Order the possibility that rates for direct-trunked
transport and tandem-switched transport transmission facilities may not
recover the full amount of the costs of switched facilities the
separations process allocates to the interstate jurisdiction.
56. We have recently begun a broad re-examination of the
jurisdictional separations process that may eventually correct this
problem. In the meantime, however, we are unable to associate these TIC
amounts with any particular interstate facilities. Instead, to the
extent that this portion of the TIC may result in part from
overallocation of costs to the interstate jurisdiction, thereby
lowering intrastate rates, this portion of the TIC may be a form of
implicit universal service support. As such, it would be inequitable to
mandate recovery of this portion of the per-minute TIC only from the
incumbent LEC's transport customers. Because these amounts do not
appear to be any more closely related to the incumbent LEC's interstate
transport facilities than they are to any other interstate facilities
of the incumbent, it is appropriate for all of the incumbent LEC's
access customers, and not just its transport customers, to pay a share
of this portion of the per-minute TIC. In the First Report and Order,
we stated our commitment to minimize the potential of the per-minute
TIC artificially to suppress demand for interstate toll services.
Because the non-facilities-related TIC is composed of amounts that have
not been demonstrated to reflect usage-sensitive costs, it does have
this undesirable effect. We have therefore required that it be
eliminated expeditiously through targeting of the X-factor reductions
to the interconnection charge service category and through conversion
of the residual TIC to a flat-rated charge.
57. In addition, we stated in the First Report and Order that a
portion of the costs remaining in the TIC may result from our use of
special access rates to develop initial geographically-averaged direct-
trunked transport and tandem-switched transport transmission rates. We
agreed in the First Report and Order that, while the use of such rates
appears to have been appropriate in urban areas, these rates may not
fully recover the higher costs of transport in less densely populated
rural areas. Because we are unable to quantify these cost differences,
and because it is likely that the cost differential varies greatly
across LECs and across study areas served by the same LEC, we did not
mandate any immediate reallocation of costs from the TIC to rural
transport rates. Instead, we expect that, as competition develops, the
incumbent LECs will come under increasing pressure to deaverage
transport rates under our existing deaveraging rules. We observe that,
as with the costs discussed in the previous paragraph, recovery of
rural transport
[[Page 56130]]
costs through the TIC supports a conclusion that at least a portion of
the non-facilities-related TIC may be related to the provision of
universal service.
58. We also here clarify that the ``residual TIC'' that the
incumbent LEC should recover from PICCs includes all TIC amounts that
have not been reassigned to other facilities-based rate elements,
including the portion of the incumbent LEC's tandem switching costs
that have not been reassigned to the tandem-switching rate element in
tariffs filed to become effective on January 1, 1998, and January 1,
1999. We direct price cap LECs that will recover only a portion of
their residual TIC from PICCs to allocate non-facilities-related TIC
amounts and facilities-related TIC amounts between PICCs and per-minute
charges on a pro rata basis. The incumbent LECs must reallocate the
full amount of the costs of their tandem switch to the tandem switching
rate element in installments on January 1, 1998, 1999, and 2000,
whether they are then contained in per-minute charges or in PICCs.
59. Accordingly, we revise the TIC exemption contained in our First
Report and Order to permit the incumbent LEC, in tariffs filed to
become effective January 1, 1998, to impose that portion of the per-
minute TIC that is not expected to be reassigned to particular
facilities on a cost-causative basis on all transport minutes switched
at its end office, without regard for whether those minutes are carried
on incumbent LEC or competitive transport facilities. Per-minute TIC
amounts that the LEC expects to reallocate to facilities-based rate
elements, in contrast, may be assessed only on minutes transported on
the incumbent LEC's own transport facilities.
60. TIC amounts that a price cap LEC will recover through PICC
charges may be assessed to an IXC for a particular loop without regard
for the type or provider of the transport the IXC uses to transport the
minutes generated by that loop from the end office to the IXC's
facilities. Although certain price cap LECs will recover a portion of
the costs of their tandem-switching facilities during the transition
through PICCs from IXCs that do not use the price cap LEC's transport
facilities to transport all of the minutes generated on a particular
loop, the administrative difficulties associated with calculating
partial PICCs in this context outweigh the benefits to be gained from
doing so. If an IXC were to use a combination of competitive- and
incumbent LEC-provided transport facilities between an end office and
its serving wire center, it would be needlessly complicated to
determine the portion of the minutes generated on each loop that were
carried on competitive transport links. Furthermore, unlike the per-
minute TIC, the flat-rated PICC will not substantially alter the
incremental cost of additional transport minutes transported over
competitive transport facilities. Thus, even if an IXC pays a full
PICC, this payment will not affect the IXC's decision whether to
purchase additional transport minutes from the incumbent LEC or a
competitive transport provider. As a flat-rated charge, the PICC will
not artificially suppress demand for interstate toll telecommunications
services.
61. In addition, the PICC is subject to competitive pressures,
whether or not it recovers TIC amounts for traffic transported by the
incumbent LEC's competitors. If the end user chooses an alternate
provider of local service, the incumbent LEC will no longer recover any
portion of the PICC for that loop. Thus, we conclude that the dangers
associated with the recovery of the full PICC without regard for the
transport provider are far more attenuated than the dangers that would
be associated with recovery of facilities-related costs from per-minute
TIC charges levied on competitive transport minutes.
62. We deny the petitions filed by U S West and NYNEX requesting a
stay of the per-minute TIC exemption rule. In determining whether to
stay the effectiveness of one of its rules or orders, the Commission
uses the four-factor test established in Virginia Petroleum Jobbers
Ass'n v. FPC, 259 F.2d 921, 925 (D.C. Cir. 1958), as modified in
Washington Metropolitan Area Transit Comm'n v. Holiday Tours, Inc., 559
F.2d 841, 843 (D.C. Cir. 1977). Under that test, petitioners must
demonstrate that: (1) They are likely to succeed on the merits on
review; (2) they would suffer irreparable injury absent a stay; (3) a
stay would not substantially harm other interested parties; and (4) a
stay would serve the public interest. We find that neither NYNEX nor U
S West has satisfied any of the four factors for granting a stay. In
light of the substantial relief we have granted above, however, we
provide only a brief analysis here of the petitioners' arguments. The
practical effect of our revisions to the TIC exemption, however, will
be to provide a substantial portion of the relief sought in the stay
petitions. In light of these revisions, we believe that the petitioners
are unlikely to succeed on the merits on review, that they will not
suffer irreparable injury absent a stay, that a stay would cause
substantial harm to the incumbent LECs' competitors, and that the
public interest is best served by the TIC exemption described here.
With respect to the portion of the TIC related to the costs of the
incumbent LEC's interstate transport facilities, we conclude that there
are sound policy reasons underlying our decision to maintain this
exemption and, consequently, we find against the petitioners here.
63. We conclude that NYNEX's objections to the sufficiency of our
notice are without merit. The Notice in this proceeding provided
adequate notice of the TIC exemption we ultimately adopted. Our Notice
in this proceeding stated that ``to the extent that any portion of the
TIC should properly be included in LEC transport rates, other than the
TIC, the TIC provides the LECs with a competitive advantage for their
interstate transport services because incumbent LEC transport rates are
priced below cost while the LECs' competitors using expanded
interconnection must pay a share of incumbent LEC transport costs
through the TIC * * *. Our goal in this proceeding is to establish a
mechanism to phase out the TIC in a manner that fosters competition and
responds to the [CompTel] court's remand.'' We went on to state, in the
section of the Notice entitled ``Possible Revisions to the TIC,'' that
``our goals are to move towards significantly more cost-based access
rates and competition in the access and interexchange markets. The
development of a competitive access market will be distorted by the
assessment of the TIC as a surcharge on local switching. The TIC
therefore will be unsustainable.'' We sought comment on the extent to
which various approaches to reducing the TIC would ``achieve the goals
of this proceeding'' and asked parties to ``address the relative merits
of each [approach], or of other approaches that they may suggest.'' We
conclude therefore that, beyond reasonable question, our Notice
provided adequate notice of ``the terms or substance of the proposed
rule or a description of the subjects and issues involved.''
64. In any event, courts require only that the rule, as adopted,
constitute a ``logical outgrowth'' of the proposed rule. E.g., National
Mining Ass'n v. Mine Safety and Health Admin., 116 F.3d 520, 531 (D.C.
Cir. 1997). To satisfy this standard, courts ask ``whether `the
purposes of notice and comment have been adequately served.' '' Factors
to be considered include ``whether a new round of notice and comment
would provide the first opportunity for interested parties to offer
comments that could persuade the agency to modify its
[[Page 56131]]
rule;'' American Water Works Ass'n v. EPA, 40 F.3d 1266, 1274 (D.C.
Cir. 1994), and whether ``the notice given affords `exposure to diverse
public comment,' `fairness to affected parties,' and `an opportunity to
develop evidence in the record.' '' We conclude that the Notice
language quoted above more than adequately meets this standard. The
Notice in this proceeding discussed possible revisions to the TIC rate
element for nine full pages, sought comment on four specific TIC-
reduction options, and invited commenters to suggest alternate
approaches. The Notice in this proceeding discussed expressly the anti-
competitive problems associated with the payment of TIC charges by
competitive providers of transport services, stated that the TIC would
be ``unsustainable'' in that form, and sought comment on approaches to
reform that would ``achieve the goals of this proceeding,'' among which
was the adoption of a transport rate structure that would foster
competition. In such circumstances, we conclude that commenters should
have anticipated that the Commission might eventually adopt a TIC
exemption for competitive transport providers, that our Notice afforded
adequate notice of the Commission's eventual adoption of such an
exemption, and that we provided an adequate opportunity for diverse
public comment.
65. In response to the Notice, several commenters, in their initial
comments, proposed TIC exemptions for competitive transport. WorldCom,
for example, argued that, ``the Commission should restructure the TIC
rate element * * * in a manner that maximizes competitive pressure on
the charge. As local and full-service competition begin[s] to emerge,
competitive carriers should be able to avoid the TIC to the extent that
they win customers away from incumbent LECs. This will create
competitive pressure for the LECs to reduce their TIC rate levels,
without necessitating any prescriptive action by the Commission.'' The
fact that several commenters raised this solution in their comments,
and in subsequent ex parte filings, supports our conclusion that the
Notice adequately raised this issue.
66. We also conclude that NYNEX's claims of irreparable harm are
without merit. Although the TIC exemption may impact some incumbent
LECs differently from others, the same can be said for virtually all of
the rules we adopt, simply because of differences in the circumstances
and business climate facing each LEC. Our focus in the context of a
stay petition must be on individualized allegations of irreparable
harm. We find that neither petitioner has met that standard with
respect to the TIC exemption we provide in this Order. Mere financial
or economic losses do not, in and of themselves, constitute irreparable
harm. In addition, because this portion of the per-minute TIC is likely
to be relatively small, in relation to the remainder of the TIC and
other transport charges, the incumbent LECs are unlikely to suffer
large-scale competitive losses as a result of the exemption, as
modified here. In any event, we have long held that ``revenues and
customers lost to competition which can be regained through competition
are not irreparable.''
67. In contrast, continued subsidy of the incumbent LECs' tandem
switching facilities by competitors is incompatible with the
development of competition in the local market. Without an exemption
permitting new entrants to cease subsidizing incumbent LEC transport
facilities, the incumbent LEC's revenue stream from facilities-related,
per-minute TIC charges would be insulated from competition. These new
entrants, having already shouldered financial burdens in seeking to
compete with the established monopoly incumbent LEC, should not be
required in addition to subsidize the facilities of the incumbent LEC
against whom they compete. Such a result would cause continued harm to
these new entrants, and would further delay the public interest
benefits of competition. Thus, we conclude that the petitioners have
failed to satisfy either of the last two factors we must consider in
evaluating their stay petitions. Accordingly, we deny the stay
petitions.
B. Deaveraged Tandem-Switched Transport Transmission Rates
68. We also take this opportunity to amend the language of section
69.111(c)(1) to specify the manner in which minutes are to be
determined through June 30, 1998, in calculating tandem-switched
transport transmission rates when an incumbent LEC has deaveraged rates
by density zone. Section 69.111(c)(2), which applies after July 1,
1998, includes such language. The First Report and Order did not intend
to take away the ability of incumbent LECs to deaverage transport
transmission rates if they have met the requisite qualifications.
Finally, we amend the references to section 69.124 in section 69.111 to
refer to section 69.123.
III. Rate-of-Return LECs
69. In the First Report and Order, we took steps to adopt, inter
alia, a cost-based transport rate structure and to comply with the D.C.
Circuit's CompTel remand. As acknowledged in the First Report and
Order, the CompTel remand applied to rate-of-return LECs as well as
price cap LECs.
70. Upon further consideration, we recognize that, absent
clarification, some language in the First Report and Order may be
ambiguous in delineating which of our decisions applied to all
incumbent LECs, including rate-of-return LECs. For example, in Section
III.C. of the First Report and Order, we directed ``all incumbent LECs
to discontinue the unitary rate structure option for the transmission
component of tandem-switched transport, effective July 1, 1998.'' In
contrast to this language, we stated at paragraph 335 in the First
Report and Order that we had restricted ``application of the rules we
adopt in this proceeding to the incumbent price cap LECs, with [three]
limited exceptions,'' for: (1) ``Universal service support to the
interstate revenue requirement for all incumbent LECs in Section
VI.D;'' (2) ``the changes to the TIC that we adopt[ed] in Section III.D
* * * will also apply to rate-of-return incumbent LECs;'' and (3) ``in
Section VI.A * * * our exclusion of unbundled network elements from
Part 69 access charges applies to all incumbent LECs.''
71. We take this opportunity to clarify that, with two limited
exceptions, the decisions made in Section III.C of the First Report and
Order relating to the rate structure and rate levels for entrance
facilities, direct-trunked transport, and tandem-switched transport
apply to all incumbent LECs, including rate-of-return LECs. The two
exceptions are that we did not create for rate-of-return LECs separate
rate elements for dedicated ports at the tandem switch and for
multiplexers at the tandem switch. Thus, for example, rate-of-return
LECs must discontinue the unitary rate structure option for tandem-
switched transport no later than July 1, 1998, when all incumbent LECs
must use only the three-part rate structure for cost recovery. These
transport modifications that are applicable to rate-of-return LECs are
in addition to those decisions made in Sections III.D, VI.A, and VI.D
that also apply to rate-of-return LECs.
IV. Ordering Clauses
72. Accordingly, it is ordered, pursuant to Sections 1-4, 201-205,
251, 254, 303, and 405 of the Communications Act of 1934, as amended,
47 U.S.C. Secs. 151-154, 201-205, 251, 254, 303, and 405, and pursuant
to section 1.108 of the Commission's rules, 47 CFR 1.108 that this
Order on Reconsideration is adopted.
[[Page 56132]]
73. It is further ordered That section 69.153(g) of the
Commission's rules, 47 CFR 69.153(g) is amended as set forth in the
rule changes.
74. It is further ordered that sections 69.4, 69.111(c)(1),
69.153(c)(1), 69.153(d)(1)(i), 69.153(d)(2)(i), and 69.155(c) of the
Commission's rules, 47 CFR 69.4, 69.111(c)(1), 69.153(c)(1),
69.153(d)(1)(i), 69.153(d)(2)(i), and 69.155(c) are amended as set
forth in the rule changes.
75. It is further ordered That the information collections
contained in these rules become effective January 1, 1998, following
OMB approval, unless a notice is published in the Federal Register
stating otherwise.
76. It is further ordered That, except as otherwise specified
herein, the policies and rules adopted here shall be effective January
1, 1998.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
PART 69--ACCESS CHARGES
77. The authority citation for Part 69 continues to read as
follows:
Authority: Secs. 4, 201, 202, 203, 205, 218, 403, 48 Stat. 1066,
1070, 1072, 1077, 1094, as amended, 47 U.S.C. 154, 201, 202, 203,
205, 218, 403.
78. Section 69.4 is amended by removing paragraph (h)(6), and
revising paragraph (a) to read as follows:
Sec. 69.4 Charges to be filed.
(a) The end user charges for access service filed with this
Commission shall include charges for the End User Common Line element,
and for line port costs in excess of basic, analog service.
* * * * *
79. Section 69.111 is amended by revising paragraph (c) to read as
follows:
Sec. 69.111 Tandem-Switched Transport and Tandem Charge.
* * * * *
(c)(1) Until June 30, 1998:
(i) Except in study areas where the incumbent local exchange
carrier has implemented density pricing zones as described in section
69.123, per-minute common transport charges described in paragraph
(a)(1) of this section shall be presumed reasonable if the incumbent
local exchange carrier bases the charges on a weighted per-minute
equivalent of direct-trunked transport DS1 and DS3 rates that reflects
the relative number of DS1 and DS3 circuits used in the tandem to end
office links (or a surrogate based on the proportion of copper and
fiber facilities in the interoffice network), calculated using the
total actual voice-grade minutes of use, geographically averaged on a
study-area-wide basis, that the incumbent local exchange carrier
experiences based on the prior year's annual use. Tandem-switched
transport transmission charges that are not presumed reasonable shall
be suspended and investigated absent a substantial cause showing by the
incumbent local exchange carrier.
(ii) In study areas where the incumbent local exchange carrier has
implemented density pricing zones as described in section 69.123, per-
minute common transport charges described in paragraph (a)(1) of this
section shall be presumed reasonable if the incumbent local exchange
carrier bases the charges on a weighted per-minute equivalent of
direct-trunked transport DS1 and DS3 rates that reflects the relative
number of DS1 and DS3 circuits used in the tandem to end office links
(or a surrogate based on the proportion of copper and fiber facilities
in the interoffice network), calculated using the total actual voice-
grade minutes of use, averaged on a zone-wide basis, that the incumbent
local exchange carrier experiences based on the prior year's annual
use. Tandem-switched transport transmission charges that are not
presumed reasonable shall be suspended and investigated absent a
substantial cause showing by the incumbent local exchange carrier.
(2) Beginning July 1, 1998:
(i) Except in study areas where the incumbent local exchange
carrier has implemented density pricing zones as described in section
69.123, per-minute common transport charges described in paragraph
(a)(2)(i) of this section shall be presumed reasonable if the incumbent
local exchange carrier bases the charges on a weighted per-minute
equivalent of direct-trunked transport DS1 and DS3 rates that reflects
the relative number of DS1 and DS3 circuits used in the tandem to end
office links (or a surrogate based on the proportion of copper and
fiber facilities in the interoffice network), calculated using the
total actual voice-grade minutes of use, geographically averaged on a
study-area-wide basis, that the incumbent local exchange carrier
experiences based on the prior year's annual use. Tandem-switched
transport transmission charges that are not presumed reasonable shall
be suspended and investigated absent a substantial cause showing by the
incumbent local exchange carrier.
(ii) In study areas where the incumbent local exchange carrier has
implemented density pricing zones as described in section 69.123, per-
minute common transport charges described in paragraph (a)(2)(i) of
this section shall be presumed reasonable if the incumbent local
exchange carrier bases the charges on a weighted per-minute equivalent
of direct-trunked transport DS1 and DS3 rates that reflects the
relative number of DS1 and DS3 circuits used in the tandem to end
office links (or a surrogate based on the proportion of copper and
fiber facilities in the interoffice network), calculated using the
total actual voice-grade minutes of use, averaged on a zone-wide basis,
that the incumbent local exchange carrier experiences based on the
prior year's annual use. Tandem-switched transport transmission charges
that are not presumed reasonable shall be suspended and investigated
absent a substantial cause showing by the incumbent local exchange
carrier.
* * * * *
80. Section 69.153 is amended by revising paragraphs (c)(1) and
(d), and adding paragraph (g) to read as follows:
Sec. 69.153 Presubscribed interexchange carrier charge (PICC).
* * * * *
(c) The maximum monthly PICC for primary residential subscriber
lines and single-line business subscriber lines shall be the lower of:
(1) One twelfth of the sum of projected annual common line revenues
and residual interconnection charge revenues permitted under our price
cap rules divided by the projected average number of local exchange
service subscriber lines in use during such annual period, minus the
maximum subscriber line charge calculated pursuant to
Sec. 69.152(d)(2); or
(2) * * *
(d) To the extent that a local exchange carrier cannot recover its
full common line revenues, residual interconnection charge revenues,
and those marketing expense revenues described in Sec. 69.156(a)
permitted under price cap regulation through the recovery mechanisms
established in Secs. 69.152, 69.153(c), and 69.156 (b) and (c), the
local exchange carrier may assess a PICC on multi-line business
subscriber lines and non-primary residential subscriber lines.
(1) The maximum monthly PICC for non-primary residential subscriber
lines shall be the lower of:
(i) One twelfth of the projected annual common line, residual
interconnection charge, and Sec. 69.156(a) marketing expense revenues
permitted under our price cap rules, less the maximum amounts permitted
to be recovered through the recovery mechanisms under Secs. 69.152,
69.153(c), and 69.156 (b) and (c), divided by the total number of
[[Page 56133]]
projected non-primary residential and multi-line business subscriber
lines in use during such annual period; or
(ii) * * *
(2) If the maximum monthly PICC for non-primary residential
subscriber lines is determined using paragraph (d)(1)(i) of this
section, the maximum monthly PICC for multi-line business subscriber
lines shall equal the maximum monthly PICC of non-primary residential
subscriber lines. Otherwise, the maximum monthly PICC for multi-line
business lines shall be the lower of:
(i) One twelfth of the projected annual common line, residual
interconnection charge, and Sec. 69.156(a) marketing expense revenues
permitted under parts 61 and 69 of our rules, less the maximum amounts
permitted to be recovered through the recovery mechanisms under
Secs. 69.152, 69.153(c) and (d)(1), and 69.156 (b) and (c), divided by
the total number of projected multi-line business subscriber lines in
use during such annual period; or
(ii) * * *
* * * * *
(g)(1) The maximum monthly PICC for Centrex lines shall be one-
ninth of the maximum charge determined under paragraph (d)(2) of this
section, except that if a Centrex customer has fewer than nine lines,
the maximum monthly PICC for those lines shall be the maximum charge
determined under paragraph (d)(2) of this section divided by the
customer's number of Centrex lines.
(2) In the event the monthly loop costs for a multi-line business
line, as defined in Sec. 69.152(b)(1), exceed the maximum permitted End
User Common Line charge, as set in Sec. 69.152(b)(3), the maximum
monthly PICC for a Centrex line determined under paragraph (g)(1) of
this section shall be increased by the difference between the monthly
loop costs defined in Sec. 69.152(b)(1) and the maximum permitted End
User Common Line charge set in Sec. 69.152(b)(3). In no event, however,
shall the PICC for a Centrex line exceed the maximum established under
paragraph (d)(2) of this section.
81. Section 69.155 is amended by revising paragraph (c) to read as
follows:
Sec. 69.155 Per-minute residual interconnection charge.
* * * * *
(c)(1) No portion of the charge assessed pursuant to paragraphs (a)
or (b) of this section that recovers revenues that the local exchange
carrier anticipates will be reassigned to other, facilities-based rate
elements, including the tandem-switching rate element described in
Sec. 69.111(g), the three-part tandem switched transport rate structure
described in Sec. 69.111(a)(2), and port and multiplexer charges
described in Sec. 69.111(l), shall be assessed upon minutes utilizing
the local exchange carrier's local switching facilities, but not the
local exchange carrier's transport service.
(2) If a local exchange carrier cannot recover its full residual
interconnection charge revenues through the PICC mechanism established
in Sec. 69.153, and will consequently recover a portion of its residual
interconnection charge revenues through per-minute charges assessed
pursuant to paragraphs (a) and (b) of this section, then the local
exchange carrier must allocate its residual interconnection charge
revenues subject to the exemption established in paragraph (c)(1) of
this section between the PICC and the per-minute residual
interconnection charge in the same proportion as other residual
interconnection charge revenues are allocated between these two
recovery mechanisms.
[FR Doc. 97-28548 Filed 10-28-97; 8:45 am]
BILLING CODE 6712-01-P
